Pass-through contribution definition
/What is a Pass-Through Contribution?
A pass-through contribution is a contribution made to one non-profit entity, which then transfers the funds to a second non-profit organization. The first non-profit may be acting as the sales arm of the second entity, taking in and passing along contributions to the final beneficiary. In this situation, the pass-through entity does not use the contributed funds for its own operational requirements.
Example of a Pass-Through Contribution
As an example of a pass-through contribution, a A philanthropist wishes to support a specific educational program at a local school but wants his donation to be managed by a nonprofit organization. Accordingly, the donor makes a $10,000 donation to a nonprofit foundation that supports education initiatives. The nonprofit foundation allocates the $10,000 directly to the local school to fund the specific educational program requested by the donor.
In this example, the nonprofit acts as a "pass-through" entity, channeling the funds from the donor to the intended recipient while potentially providing logistical support or meeting legal requirements for tax-exempt donations. The nonprofit may or may not take an administrative fee for facilitating the transaction, depending on the arrangement.
Tax-Deductibility of Pass-Through Contributions
Donations made to a pass-through entity are still considered to be eligible for a tax deduction by the donor, as long as the ultimate receiving organization is a qualified entity (which generally means that it is a 501(c)(3) entity).
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FAQs
Can a Nonprofit Charge a Fee for Handling Pass-Through Contributions?
A nonprofit can charge an administrative fee for processing pass-through contributions, especially when it incurs costs in handling, tracking, and disbursing the funds. Such fees must be reasonable and clearly disclosed to donors in advance to maintain transparency. If not communicated properly, charging fees could damage donor trust and create compliance concerns.